Saturday, July 28, 2012

More on MMT and ELR

Thomas I. Palley

Randy Wray and Mat Forstater, two leading contributors to the MMT School, have replied to my recent blog on the MMT controversy. Their replies warrant a brief response.

I agree that it does not matter very much who first identified the euro’s potential for failure. Along with other Keynesians, MMT-ers were early to identify the euro’s structural flaw – namely, its conversion of the financial status of national government into provincial government status via removal of government’s power to access money creation through a government controlled central bank. In many ways Warren Mosler (1995) is the godfather of interest in this issue.

Yep, Warren was always as far as I know not particularly Keen on capital controls, and also very sure that completely flexible rates (not managed exchange rates) are central for MMT/ELR. Mosler in his praise for Randy's 1998 book (in the back cover) says: “This book is a must read for those calling for the abandonment of floating exchange rate policy and a return to fixed exchange rates, a gold standard or capital controls. The achievement of zero unemployment, price stability, and a market economy for the long term as advanced by Wray is viable only with floating exchange rates.” So any managed exchange rate, that we do need in developing countries is equated with a rigid peg, like the Gold Standard, and he is clearly against capital controls.